Dr Shubhada M. Rao, President and Chief Economist of YES Bank Ltd, said that the CRR cut of 50 basis points in the third quarter review of monetary policy 2011-12 by the Reserve Bank of India is in line with expectation.

Speaking to Business Line over phone, Dr Rao said: “I think our call has come right in terms of being in line with expectation. We did see structural kind of factors creeping into the liquidity deficit. We had anticipated CRR cut of 50 basis points. Quite clearly this is what has got effected.”

Stating that growth, particularly investment-led growth, is the larger concern today, she said that is what the RBI has begun to address. Stressing the need to spur and provide impetus to investments, she said this obviously cannot be done in isolation. This needs to be very comprehensively backed by the policies at the Government level, because monetary policy alone cannot bear the burden.

Dr Rao said that it has to be complemented with Government measures. “To spur investments, we need a combination. If the Government shows its indication through the Budget, that is the time we believe there is the complementarity in effort. Then the RBI can back it up with a cut in repo by 50 basis points.

Stating that there are still upside risks in inflation, she said the trajectory of inflation is in line with what the RBI has in mind. “There are no nasty surprises on inflation yet. But with upside risks, they have not therefore hurried on rate call on repo rate,” she said.

If the inflation does indeed pan out the way it has been anticipated by March going well below 7 per cent, then we will see a chance of the RBI cutting the repo rate in March, she added.

vinayakaj@thehindu.co.in

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